Excisability of plant and machinery assembled at site - regarding - Central Excise - F. No. 154/26/99-CX.4

Order No. 58/1/2002-CX Dated 15-1-2002 F. No. 154/26/99-CX.4 Government of India Ministry of Finance (Department of Revenue) Central Board of Excise Customs, New Delhi Subject : Excisability of plant and machinery assembled at site - regarding. In exercise of the power conferred under Section 37B of the Central Excise Act, 1944, the Central Board of Excise and Custom considers it necessary, for the purpose of uniformity in connection with classification of goods erected and installed at site, to issue the following instructions. 2. Attention is invited to Section 37B Order No. 53/2/98-CX, dt. 2-4-98 (F. No. 154/4/98-CX. 4) [1998 (100) E.L.T. T9] regarding the excisability of plant and machinery assembled at site. 3. A number of Apex Court judgments have been delivered on this issue in the recent past. Some of the important ones are mentioned below : (i) Quality Steel Tubes Pvt. Ltd. v. CCE [1995 (75) E.L.T. 17 (S.C.)] (ii) Mittal Engineering Works Pvt. Ltd. v. CCE, Meerut [1996 (88) E.L.T. 622 (S.C.)] (iii) Sirpur Paper Mills Limited v. CCE, Hyderabad [1998 (97) E.L.T. 3 (S.C.)] (iv) Silica Metallurgical Ltd. v. CCE, Cochin [1999 (106) E.L.T. 439 (Tribunal)] as confirmed by the Supreme Court vide their order dated 22-2-99 [1999 (108) E.L.T. A58 (S.C.)] (v) Duncan Industries Ltd. v. CCE, Mumbai [2000 (88) ECR 19 (S.C.)] (vi) Triveni Engineering Industries Ltd. v. CCE [2000 (120) E.L.T. 273 (S.C.)] (vii) CCE, Jaipur v. Man Structurals Ltd. [2001 (130) E.L.T. 401 (S.C.)] 4. The plethora of such judgments appear to have created some confusion with the assessing officers. The matter has been examined by the Board in consultation with the Solicitor General of India and the matter is clarified as under :- (i) For goods manufactured at site to be dutiable they should have a new identity, character and use, distinct from the inputs/ components that have gone into its production. Further, such resultant goods should be specified in the Central Excise Tariff as excisable goods besides being marketable i.e. they can be taken to the market and sold (even if they are not actually sold). The goods should not be immovable. (ii) Where processing of inputs results in a new product with a distinct commercial name, identity and use (prior to such product being assimilated in a structure which would render them as a part of immovable property), excise duty would be chargeable on such goods immediately upon their change of identity and prior to their assimilation in the structure or other immovable property. (iii) Where change of identity takes place in the course of construction or erection of a structure which is an immovable property, then there would be no manufacture of "goods" involved and no levy of excise duty. (iv) Integrated plants/machines, as a whole, may or may not be 'goods'. For example, plants for transportation of material (such as handling plants) are actually a system or a net-work of machines. The system comes into being upon assembly of its component. In such a situation there is no manufacture of "goods" as it is only a case of assembly of manufactured goods into a system. This cannot be compared to a fabrication where a group of machines themselves may be combined to constitute a new machine which has its own identity/marketability and is dutiable (e.g. a paper making machine assembled at site and fixed to the earth only for the purpose of ensuring vibration free movement) (v) If items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered as moveable and will, therefore, not be excisable goods. (vi) If any goods installed at site (example paper making machine) are capable of being sold or shifted as such after removal from the base and without dismantling into its components/parts, the goods would be considered to be moveable and thus excisable. The mere fact that the goods, though being capable of being sold or shifted without dismantling, are actually dismantled into their components/parts for ease of transportation etc., they will not cease to be dutiable merely because they are transported in dismantled condition. Rule 2(a) of the Rules for the Interpretation of Central Excise Tariff will be attracted as the guiding factor is capability of being marketed in the original form and not whether it is actually dismantled or not, into its components. Each case will therefore have to be decided keeping in view the facts and circumstances, particularly whether it is practically possible (considering the size and nature of the goods, the existence of appropriate transport by air, water, land for such size, capability of goods to move on self propulsion -ships- etc.) to remove and sell the goods as they are, without dismantling into their components. If the goods are incapable of being sold, shifted and marketed without first being dismantled into component parts, the goods would be considered as immovable and therefore not excisable to duty. (vii) When the final product is considered as immovable and hence not excisable goods, the same product in CKD or unassembled form will also not be dutiable as a whole by applying Rule 2(a) of the Rules of Interpretation of the Central Excise Tariff. However, components, inputs and parts which are specified excisable products will remain dutiable as such identifiable goods at the time of their clearance from the factory or warehouse. (viii) The intention of the party is also a factor to be taken into consideration to ascertain whether the embedment of a machinery in the earth was to be temporary or permanent. This, in case of doubt, may help determine whether the goods are moveable or immovable. 5. Keeping the above factors in mind the position is clarified further in respect of specific instances which have been brought to the notice of the Board. (i) Turn key projects like Steel Plants, Cement plants, Power plants etc. involving supply of large number of components, machinery, equipments, pipes and tubes etc. for their assembly/installation/ erection/integration/inter-connectivity on foundation/civil structure etc. at site, will not be considered as excisable goods for imposition of central excise duty - the components, however, would be dutiable in the normal course. (ii) Huge tanks made of metal for storage of petroleum products in oil refineries or installations. These tanks, though not embedded in the earth, are erected at site, stage by stage, and after completion they cannot be physically moved. On sale/disposal they have necessarily to be dismantled and sold as metal sheets/scrap. It is not possible to assemble the tank all over again. Such tanks are, therefore, not moveable and cannot be considered as excisable goods [Reference para 15 of Triveni judgement supra and the case of CCE Chandigarh v. Bhagwanpura Sugar Mills reported in 2001 (134) E.L.T. 673 (Tri.-Del.) = 2001 (47) RLT 409 (CEGAT-Del)] (iii) Refrigeration/Air conditioning plants. These are basically systems comprising of compressors, ducting, pipings, insulators and sometimes cooling towers etc. They are in the nature of systems and are not machines as a whole. They come into existence only by assembly and connection of various components and parts. Though each component is dutiable, the refrigeration/air conditioning system as a whole cannot be considered to be excisable goods. Air conditioning units, however, would continue to remain dutiable as per the Central Excise Tariff. (iv) Lifts and escalators. (a) Though lifts and escalators are specifically mentioned in sub heading 8428.10, those which are installed in buildings and permanently fitted into the civil structure, cannot be considered to be excisable goods. Such lifts and escalators have also been held to be non-excisable by the Govt. of India in the case of Otis Elevators India Co. Ltd. reported in 1981 (8) E.L.T. 720 (GOI). Further, this aspect was also a subject matter of C AG's Audit Para No. 7.1(b)/98-99 [DAP No. 186] which has since been settled by the C AG accepting the Board's view that such lifts and escalators are not excisable goods. Also refer CCE v. Kone Elevators India Ltd. reported in 2001 (138) E.L.T. 635 (Tri.-Chen.) = 2001 (45) RLT 676 (CEGAT-Chen). (b) There may, however, be instances of fabrication of complete lifts and escalators which are movable in nature as a whole and can be temporarily installed at construction sites or exhibitions for carrying men or material. Such cases alone would be liable to duty under sub-heading 8428.10 of the Central Excise Tariff. 6. Based on the above clarifications pending cases may be disposed of. Past Instructions, Circulars and Orders of the Board on this issue may be considered as suitably modified. 7. Suitable Trade Notice may be issued for the information and guidance of the trade. 8. Receipt of this order may please be acknowledged. 9. Hindi version will follow.